Do more to protect investors from inflated prices

PHOTO: BT

Proponents of the minimum trading price (MTP) initiative for the Singapore stock market have argued that we need to shake out listed companies that are consistently underperforming to maintain a healthy market ("Firms moving to meet minimum trading price rule"; March 3, and "SGX minimum-trading-price rule kicks in"; March 2).

While listed companies should always strive to upkeep the high standards of a listed concern and may need certain measures to nudge them, they must not shift the costs of such exercises to investors.

With a small investor population, a relatively low number of listed companies and no hinterland to fall back on, our small market faces the difficulty of attracting quality listings from overseas.

The ones drawn here appear to be "rejects" or third-tier companies back home and, hence, are mostly of poor quality.

With creative accounting and marketing, these companies sometimes overprice their shares at listing, eventually languishing to the peril of investors.

Subsequent calls for underperforming companies to "buck up" become meaningless.

Examples are GCCP (listed on April 30), which had its initial public offering (IPO) share price halved from $0.23 to $0.118 almost overnight, and the series of S-chips (China shares) previously listed here which either diminished in value or disappeared altogether from the exchange.

Hence, imposing a "caveat emptor" or buyer-beware regime seems irresponsible when most retail investors cannot authenticate the true value of these embellished IPOs.

If our regulators are serious about protecting investors' interests, they need to take responsibility for authenticating the assets and liabilities of potential listed companies.

This will ensure that listing prices are kept reasonable and not inflated.

Also, introducing MTP with consolidation has the potential of causing a fall in share prices and quickening the demise of affected shares.

Since MTP came into effect in March, consolidated stocks have suffered an average market loss of 19.4 per cent on their prices.

The public consultation of MTP included a proposal of a third (over-the-counter) board meant for housing dropped-out counters rather than delisting them, should such companies fail to afford the sponsorship fees for the second board (Catalist).

But the subsequent dismissal of the OTC idea hinted that many small-cap investors will have to see their share holdings completely disappear.

This article was first published on June 16, 2015. Get a copy of The Straits Times or go to straitstimes.com for more stories.